Report on Audit
of Cost Accounting Standards 420, Accounting for Independent Research and
Development Costs and Bid and Proposal Costs

September 2005

Reference Number:2005-1C-174

This report has cleared the Treasury Inspector General
for Tax Administration disclosure review process and information determined to
be restricted from public release has been redacted from this document.

Web Site|http://www.tigta.gov

September 26, 2005

MEMORANDUM FORDAVID A. GRANT

DIRECTOR
OF PROCUREMENT

INTERNAL
REVENUE SERVICE

FROM:Daniel
R. Devlin /s/ Daniel R. Devlin

Assistant
Inspector General for Audit (Headquarters Operations

and
Exempt Organizations Programs)

SUBJECT:Report on Audit of Cost
Accounting Standards 420, Accounting for Independent Research and Development
Costs and Bid and Proposal Costs (Audit # 20051C0240)

The
Defense Contract Audit Agency (DCAA) examined the contractor’s compliance with
the requirements of Cost Accounting Standards (CAS) 420, Accounting for
Independent Research and Development Costs and Bid and Proposal Costs.The purpose of the examination was to
determine if the contractor complied with the requirements of CAS 420 and any
applicable Federal Acquisition Regulation[1] Part 31 requirements during the
period October 5,2004, through April 28, 2005.

The DCAA
reported that the contractor complied in all material respects with the
requirements of CAS 420 during the period October 5, 2004, through April 28,
2005. The DCAA also noted the contractor’s
accounting policies and procedures for charging costs to Federal Government
contracts are in accordance with applicable laws and regulations.The DCAA currently considers the environment
and overall accounting system to be adequate.

The
information in this report
should not be used for purposes other than those intended without prior
consultation with the Treasury Inspector General for Tax Administration
regarding their applicability.

If you have any questions, please contact me at (202) 622-8500 or
John R. Wright, Director, at (202) 927-7077.

Attachment

NOTICE:

The
Office of Inspector General for Tax Administration has no objection to the
release of this report, at the discretion of the contracting officer, to duly
authorized representatives of the contractor.

The
contractor information contained in this report is proprietary
information.The restrictions of 18
U.S.C. § 1905 must be followed in releasing any information to the public.

This report may not be
released without the approval of this office, except to an agency requesting
the report for use in negotiating or administering a contract with the
contractor.